Examination of Medical Services : Study Hopes to Show How Doctors Structure Their Fees

BOSTON — William Hsiao, a Harvard University medical economist, has heard countless stories like the one told by a California gastrointestinal specialist--and they are typical of why the professor believes major changes are almost inevitable in the way physicians are paid in America.

The Santa Monica doctor recalled the cases of two patients. The first had been referred by his family doctor after several liver-function tests produced abnormal results. Adding urgency was the fact that the patient had recently reported persistent weight loss and fever.

The initial examination took an hour. The doctor ordered a battery of specialized laboratory tests. He spent another 30 minutes reviewing the perplexing file in his office after the patient had left.

The patient returned two or three days later and the doctor, after spending another 30 minutes with him, prescribed a battery of drugs. The diagnosis: sarcoidosis , an unusual disease of unknown cause that is extremely difficult to detect. It is life-threatening if not diagnosed quickly. The doctor billed the patient's insurance company $175.

On the same day as the liver patient's initial visit, the Santa Monica doctor walked over to St. John's Hospital where a patient was waiting for him in a procedure room. Using a fiber-optic device called a colonoscope, the doctor spent a total of 10 minutes removing a small, benign growth from the patient's large intestine. Fee: $650.

More Art Than Science

It is likely that the liver patient's life was saved by the doctor's diagnostic skill--a set of techniques that relies in large degree on spending enough time with the patient to get a sense of what may truly be wrong. It is a talent that underscores that medicine today--even in a high-tech era--is still often more art than science. Yet for his services, which took 12 times as long as the technician-like polyp removal, the doctor will receive a little more than a quarter of the payment.

To Hsiao, who is currently organizing a complex study of the way American doctors are paid for what they do, the example could be representative of almost a standard of inequality that has come to govern since private health insurance became widely available after World War II.

What is troubling to Hsiao and other experts in health-care economics is that, by skewing its financial rewards, the prevailing system of medical economics may distort the effectiveness of the medical care many Americans receive. This proclivity makes it increasingly certain that the long, anything-goes era of fee charges that are "usual and customary" may be ending.

And therein is the reason Hsiao and a team of other researchers at Harvard have begun a 30-month, $2-million inquiry financed by the federal government's Health Care Financing Administration. It is intended to determine if there is any rational explanation for the way physician fees are structured and, if there is not, how a better system might be devised.

Behind the decision to sponsor the study, moreover, is an acknowledgment by both the federal government and the American Medical Assn., which is participating in the research, that the time has come to resolve one of the major--though, in consumer terms, perhaps one of the quietest--controversies in medicine today.

In essence, the controversy poses this question: Are what are commonly called "cognitive services" rendered by doctors--those activities that involve thinking, reasoning and other manifestations of intellect--worth more, less or the same as those that are lumped together as "procedures": operations, biopsies, sophisticated invasive tests and the like?

In financial terms, should saving someone's life through an intellectual process be compensated in financial terms differently than saving the same life by means of a technical procedure in an operating room? How, indeed, do doctors or can doctors financially value their services?

The debate has already attracted significant attention from federal agencies. The congressional Office of Technology Assessment released a physician payment study a month ago that focused in large degree on vagaries of how services are valued. The Health Care Financing Administration itself is expected to release a related study soon--focusing on how payment systems can be changed for federally funded health programs, in particular.

The Congressional Budget Office also is planning to release a study of physician payments--probably this week--that is reliably reported to avoid some of the questions of relative values of services but to acknowledge that it is a critical issue to resolve.

And answering these questions may eventually turn contemporary U.S. medical economics on its ear, experts interviewed across the country by The Times agree, and could result in what would amount to a vast redistribution of wealth among physicians.